The Charge of the Lite Brigade: Riffing on Alfred Lord Tennyson

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(This story first appeared in the February 2019 edition of Crypto.IQ’s newsletter “Proof of Brain”)

2019 feels decidedly more optimistic than 2018 for the crypto markets so far. But analysts are looking for confirmation of the bottom so that we can charge forward with confidence.

Unfortunately, that’s something we can only know for sure with the benefit of hindsight. We can only confirm the bottom is in well after it has passed and the market has reversed direction to the upside in convincing fashion.

For the past few days, we’ve seen a broad crypto rally lead by the big coins Bitcoin, Litecoin, and Ethereum, along with some strong runs on select altcoins as well. Analysts looking ahead for the next bull run are contemplating potential catalysts that may have wide-ranging effects on the whole market this year. In particular, is the performance of Litecoin and its upcoming halving.

Half a league, half a league,Half a league onward,All in the valley of DeathRode the six hundred.

These lines are from “The Charge of the Light Brigade,” a poem Alfred Lord Tennyson wrote after a brave but tragic British cavalry assault in the Crimean War in 1854. Lucky for us, we don’t have to worry about the half league that lies between us and an overwhelming artillery position. We’re more concerned with the half of the block reward miners will receive after the Litecoin halving arrives on or about Aug. 7 of this year.

A halving is a periodic reduction of the block reward in cryptocurrency mining. Bitcoin and Litecoin have halvings every four years. Bitcoin’s next halving will reduce the block reward from today’s 12.5 BTC to 6.25, and Litecoin’s will reduce its block reward to 12.5 LTC. Ethereum has an imminent network upgrade that will reduce its block reward from three to two which is being called a thirdening.

Halvings are a built-in scarcity factor. This process reduces the supply of coins flowing into the market. This is why these currencies are described as being deflationary. The incoming supply decreases over time. Fiat currencies like the US dollar are inflationary. They increase over time as central banks print money whenever they want, devaluing the currency. That’s why the value of the US dollar has gone down 95 percent since 1913. But cryptocurrencies have a mathematically predetermined supply that decreases over time, theoretically increasing their value.

Many analysts believe that this reduction in the block reward has a predictable effect on the market. The theory is that traders are pricing in the scarcity that will be created by the halving. Although the Bitcoin halving is believed to be the most important because Bitcoin dominates the cryptocurrency market, but Bitcoin’s next halving isn’t until May 2020.

So the recent market action may indicate we may be under the influence of the Litecoin halving, which will happen much sooner. If we can optimistically assume that the bottom is in, then the recent rally in Litecoin could be an indicator of what’s to come in the next few months, not just for Litecoin, but for the whole market. And Litecoin may be leading the way.

“Forward, the Lite Brigade!”Theirs not to make reply,Theirs not to reason why,Theirs but to do and die.

Let’s take a close look at how the market reacted at the last Litecoin halving. In the depths of the last bear market, on Jan. 14, 2015, Litecoin hit a low of $1.13. From that point, it began a steady rise that rallied all the way to $8.56 on July 10. This was all presumably due to the anticipation of the Litecoin halving that took place on Aug. 25.

In the same time period, Bitcoin rose from its bottom of $175.28 to reach $287.43, a gain of 64 percent. That’s an impressive rally in seven months and a nice change after a year-long bear market. But it doesn’t compare to the massive rise in Litecoin of 757 percent.

So, if history should repeat itself, let’s imagine how that would look.

If LTC made the same run this time around, it would rally from its bottom on Dec. 14, 2018, of $22.97 to a high of $173.88 before Aug. 7, 2019. Today, with the despair of the bear market still clinging to us, that sounds like an extreme move and maybe unrealistic. A commensurate move in BTC would result in a price of $24,254. It seems like too much to ask Bitcoin to make a new all-time high by August. Markets need time to recover, don’t they?

Yes, but there’s another factor at play. Litecoin can gain in value relative to BTC, too.

At the January 2015 low, Litecoin was valued at approximately 0.006 BTC but rose to 0.0316 BTC at its peak in July 2015. That’s how Litecoin went on an 8x tear but Bitcoin only went up 64 percent compared to the dollar. So a Litecoin rally to $173.88 doesn’t require a complementary 8x run in Bitcoin. At the same relative values as in 2015, that would put the price of Bitcoin at $5502 by August, a rise of 38 percent from today’s $3980. That’s not unreasonable at all.

What indications do we have that Litecoin is repeating 2015?

This year’s halving is around Aug. 7, and the halving in 2015 was on Aug. 25, so we have very similar timelines to compare. In 2015, the rally started a little over a year after the previous all-time high, and it was 224 days from the low on Jan. 14 to the halving on Aug. 25. Our recent Litecoin low on Dec. 14 also began about a year after the previous all-time high, and it came 237 days before the halving on Aug. 7. The time frames are nearly identical.

The difference is that in 2015 Litecoin made the bulk of its run in June and July and went parabolic before settling back down for the halving.

This year, a rally to the numbers we’re talking about is actually more realistic because it has already begun in a much more sustainable manner. On the low of $22.97 on Dec. 14, LTC was at 0.0071 BTC which is very close to 2015’s 0.006 at the same point. Today, it’s already up 70 percent to 0.0121 BTC, and the dollar value is up 88 percent at the price of $49. Bitcoin is only up 24 percent in the same time period.

We’ve talked about Litecoin leading the market in our market analysis quite recently. Only time will tell if it’s because of the halving or if Litecoin will ultimately repeat 2015’s performance. There’s a similar market environment as 2015, but there are much better fundamentals in 2019, so the prospect is good.

All eyes will be on Bitcoin for confirmation that we’re out of the bear market, and as Ethereum goes through its upgrade, it too will attract a lot of attention. Meanwhile, we’ll be watching Litecoin closely. Let’s hope Litecoin’s charge leads to a better outcome than the original Light Brigade.

When can their glory fade?O the wild charge they made!All the world wondered.Honour the charge they made!Honour the Lite Brigade!